206 BUSINESS STUDIES

CHAPTER 9

SMALL BUSINESS AND ENTREPRENEURSHIP

LEARNING OBJECTIVES

After studying this chapter, you should be able to:

• explain the meaning and nature of small business;

• appreciate the role of small business in India;

• analyse the problems of small business; and

• classify the different forms of assistance provided by the

government to small business, particularly in rural and hilly areas.

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Romi Bags of Manipur

Khumbongmayum Dhanachandra Singh didn't have much in life. The son of a
poor tailor, he wasn’t brought up with many privileges. He saw his father working
day and night to earn a meager income. He saw the rich getting richer and the poor
remaining poor. The boy wanted to do something more in life. He couldn't imagine
a life of stitching clothes relentlessly and earn just enough to survive.
Imphal is a small city in Manipur. Hardworking men and women send their
children away to bigger cities so they can have opportunities to progress.
Khumbongmayum's father couldn't afford to send him or even educate him. He
just taught him what he knew— tailoring. Fabrics, stitching and clothing styles
was what the boy grew up with. There was only one sewing machine and the
boy used it when his father wasn't using it. He learnt it silently because he
knew it was what his father wanted, but his heart wasn't in it.
Sometimes an incident can change your life. This happened to
Khumbongmayum when he stitched a purse made out of leftover fabrics from
his father's scraps. Khumbongmayum offered the purse to his friend who
marveled at the unique design. The friend in turn showed the interesting purse
to other friends. They asked Khumbongmayum if he could make such purses
for them also. It led him to wonder if there was a market for his designs. And he
knew he had stumbled on to his business venture. He made a business plan
and launched a purse making company 'Romi Bags' in 1996. Khumbongmayum
was not one to do anything on a whim. He noticed the demands of his product
and he calculated his costs, expenses and expected income. He ignored the
detractors and critics. As a first time entrepreneur, he believed in whatever
quality of raw materials he was getting. This was his biggest mistake.
Khumbongmayum learnt his first lesson. In 2007, he received the National Award
for Bag Making under Micro & Medium Enterprises. For him, though it's just
the beginning, Khumbongmayum Dhanchandra Singh has changed his life by
sheer grit, perseverance and hard work. You can't let anything stop you from
moving forward. You can't become successful or reach the top if you don’t listen
and hear effectively.

9.1 INTRODUCTION Small scale industries dominate the

Small scale industries contribute
significantly to the development
process and acts as a vital link in the
industrialisation in terms of
production, employment and exports
for economic prosperity by widening
entrepreneurial base and use of local
raw materials and indigenous skills.
industrial scenario in the country with
sizeable proportion of labour force and
tremendous export potential.
In India, the 'village and small
industries sector' consists of both
'traditional' and 'modern' small
industries. This sector has eight
subgroups. They are handlooms,
handicrafts, coir, sericulture, khadi

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and village industries, small scale
industries and powerlooms. The last
two come under the modern small
industries, while the others come under
traditional industries. Village and small
industries together provide the largest
employment opportunities in India.
9.2 TYPES OF SMALL BUSINESS
It is important to know how size is
defined in our country, with reference
to small industries and small business
establishments. Several parameters can
be used to measure the size of business
units. These include the number of
persons employed in business, capital
invested in business, volume of output
or value of output of business and
power consumed for business
activities. However, there is no
parameter which is without limitations.
Depending on the need, the measures
can vary.
The definition used by the
Government of India to describe small
industries is based on the investment
in plant and machinery. This measure
seeks to keep in view the socio-
economic environment in India where
capital is scarce and labour is abundant.
The emergence of a large services
sector has necessitated the government
to include other enterprises covering
both Small Scale Industries (SSI) sector
and related service entities under the
same umbrella. Expansion of the small
scale enterprises was taking place
growing into medium scale enterprises
and they were required to adopt higher
levels of technologies in order to remain
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competitive in a fast globalising world.
Thus, it was necessary to address the
concerns of such enterprises micro,
small and medium and provide them
with a single legal framework. The
Micro, Small and Medium Enterprises
Development (MSMED) Act, 2006
addresses these issues relating to
definition, credit, marketing and
technology up gradation. Medium scale
enterprises and service related
enterprises also come under the
purview of this Act. The MSMED Act,
2006 came into force w.e.f., October,
2006.
Accordingly, enterprises are
classified into two major categories viz.,
manufacturing and services.
9.2.1 Manufacturing
In the case of enterprises engaged in
the manufacture or production of
goods pertaining to any industries
specified in the first schedule to the
Industries (Development and
Regulation) Act, 1951, there are three
types of enterprises:
(i) Micro enterprise: where the
investment in plant and machinery does
not exceed twenty-five lakh rupees.
(ii) Small enterprise: where the
investment in plant and machinery is
more than twenty five lakh rupees but
does not exceed five crore rupees.
(iii) Medium enterprise: where the
investment in plant and machinery is
more then five crore rupees but does
not exceed ten crores rupees.
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9.2.2 Services
In the case of enterprises engaged in
providing or rendering of services there
are three types of enterprises:
(i) Micro enterprise: where the
investment in equipment does not
exceed ten lakh rupees.
(ii) Small enterprise: where the
investment in equipment is more than
ten lakh rupees but does not exceed
two crore rupees.
(iii) Medium enterprise: where the
investment in equipment is more than
two crore rupees but does not exceed
five crore rupees.
9.2.3 Village Industries
Village industry has been defined as
any industry located in a rural area
which produces any goods, renders any
service with or without the use of power
and in which the fixed capital
investment per head or artisan or
worker is specified by the central
government, from time to time.
9.2.4 Cottage Industries
Cottage industries are also known as
Rural Industries or T raditional
Industries. They are not defined by
capital investment criteria as in the case
of other small scale industries.
However, cottage industries are
characterized by certain features like
the following:
• these are organised by individuals,
with private resources;
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• normally use family labour and
locally available talent;
• the equipment used is simple;
• capital investment is small;
• produce simple products, normally
in their own premises;
• production of goods using
indigenous technology.
9.3 ROLE OF SMALL BUSINESS IN INDIA
Small Scale Industries in India enjoy a
distinct position in view of their
contribution to the socio-economic
development of the country. The
following points highlight their
contribution.
(i) The contribution of small
industries to the balanced regional
development of our country is
noteworthy. Small industries in India
account for 95 per cent of the industrial
units in the country.
(ii) Small industries are the second
largest employers of human resources,
after agriculture. They generate more
number of employment opportunities
per unit of capital invested compared
to large industries. They are, therefore,
considered to be more labour intensive
and less capital intensive. This is a
boon for a labour surplus country like
India.
(iii) Small industries in our country
supply an enormous variety of
products which include mass
consumption goods, readymade
garments, hosiery goods, stationery
items, soaps and detergents, domestic
utensils, leather, plastic and rubber
goods, processed foods and vegetables,
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wood and steel furniture, paints,
varnishes, safety matches, etc. Among
the sophisticated items manufactured
are electric and electronic goods like
televisions, calculators, electro-medical
equipment, electronic teaching aids like
overhead projectors, air conditioning
equipment, drugs and
pharmaceuticals, agricultural tools
and equipment and several other
engineering products. A special
mention should be made of
handlooms, handicrafts and other
products from traditional village
industries in view of their export value.
(see Box A which highlights the major
industry groups that come under the
purview of small industries as per the
classification laid down by the
government.)
(iv) Small industries which produce
simple products using simple
technologies and depend on locally
available resources both material and
labour can be set up anywhere in the
country. Since they can be widely
spread without any locational
constraints, the benefits of
industrialisation can be reaped by
every region. They, thus, contribute
significantly to the balanced
development of the country.
(v) Small industries provide ample
opportunity for entrepreneurship. The
latent skills and talents of people can
be channeled into business ideas
which can be converted into reality
with little capital investment and almost
nil formalities to start a small business.
(vi) Small industries also enjoy the
advantage of low cost of production.
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Locally available resources are less
expensive. Establishment and running
costs of small industries are on the
lower side because of low overhead
expenses. Infact, the low cost of
production which small industries
enjoy is their competitive strength.
(vii) Due to the small size of the
organisations, quick and timely
decisions can be taken without
consulting many people as it happens
in large sized organisations. New
business opportunities can be
captured at the right time.
9.4 R OLE OF S MALL B USINESS IN
RURAL INDIA
Traditionally, rural households in
developing countries have been viewed
as exclusively engaged in agriculture.
There is an increasing evidence that
rural households can have highly
varied and multiple sources of income
and that, rural households can and do
participate in a wide range of non-
agricultural activities such as wage
employment and self-employment in
commerce, manufacturing and
services, along with the traditional rural
activities of farming and agricultural
labour. This can be largely attributed
to the policy initiatives taken by the
Government of India, to encourage and
promote the setting up of agro-based
rural industries.
The emphasis on village and small
scale industries has always been an
integral part of India's industrial
strategy, more so, after the second Five
Year Plan. Cottage and rural industries
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play an important role in providing
employment opportunities in the rural
areas, especially for the traditional
artisans and the weaker sections of
society. Development of rural and
village industries can also prevent
migration of rural population to urban
areas in search of employment.
Village and small industries are
significant as producers of consumer
goods and absorbers of surplus labour,
thereby addressing the problems of
poverty and unemployment. These
industries contribute amply to other
socio-economic aspects, such as
reduction in income inequalities,
dispersed development of industries
and linkage with other sectors of the
economy.
In fact promotion of small scale
industries and rural industrialisation
has been considered by the
Government of India as a powerful
instrument for realising the twin
objectives of 'accelerated industrial
growth and creating additional
productive employment potential in
rural and backward areas.'
However, the potential of small
industries is often not realised fully,
because of several problems related to
size. We shall now examine some of the
major problems that small businesses
whether in urban or in rural areas are
encountering in their day-to-day
functioning.
9.5 PROBLEMS OF SMALL BUSINESS
Small scale industries are at a distinct
disadvantage as compared to large
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scale industries. The scale of
operations, availability of finance,
ability to use modern technology,
procurement of raw materials are some
of these areas. This gives rise to several
problems.
Most of these problems can be
attributed to the small size of their
business, which prevents them from
taking advantages, which accrue to
large business organisations. However,
the problems faced are not similar to
all the categories of small businesses.
For instance, in the case of small
ancillary units, the major problems
include delayed payments, uncertainty
of getting orders from the parent units
and frequent changes in production
processes. The problems of traditional
small scale units include remote
location with less developed
infrastructural facilities, lack of
managerial talent, poor quality,
traditional technology and inadequate
availability of finance.
The problems of exporting small
scale units include lack of adequate
data on foreign markets, lack of market
intelligence, exchange rate
fluctuations, quality standards, and
pre-shipment finance. In general the
small businesses are faced with the
following problems:
(i) Finance: One of the severe
problems faced by SSIs is that of non-
availability of adequate finance to carry
out its operations.
Generally a small business begins
with a small capital base. Many of the
units in the small sector lack the credit
worthiness required to raise as capital
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from the capital markets. As a result,
they heavily depend on local financial
resources and are frequently the
victims of exploitation by the money
lenders. These units frequently suffer
from lack of adequate working capital,
either due to delayed payment of dues
to them or locking up of their capital in
unsold stocks. Banks also do not lend
money without adequate collateral
security or guarantees and margin
money, which many of them are not in
a position to provide.
(ii) Raw materials: Another major
problem of small business is the
procurement of raw materials. If the
required materials are not available,
they have to compromise on the quality
or have to pay a high price to get good
quality materials. Their bargaining
power is relatively low due to the small
quantity of purchases made by them.
Also, they cannot afford to take the risk
of buying in bulk as they have no
facilities to store the materials. Because
of general scarcity of metals, chemicals
and extractive raw materials in the
economy, the small scale sector suffers
the most. This also means a waste of
production capacity for the economy
and loss of further units.
(iii) Managerial skills: Small
business is generally promoted and
operated by a single person, who may
not possess all the managerial skills
required to run the business. Many of
the small business entrepreneurs
possess sound technical knowledge
but are less successful in marketing
the output.
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Moreover, they may not find
enough time to take care of all
functional activities. At the same time
they are not in a position to afford
professional managers.
(iv) Labour: Small business firms
cannot afford to pay higher salaries to
the employees, which affects employee
willingness to work hard and produce
more. Thus, productivity per employee
is relatively low and employee turn over
is generally high. Because of lower
remuneration offered, attracting
talented people is a major problem in
small business organisations.
Unskilled workers join for low
remuneration but training them is a
time consuming process. Also, unlike
large organisations, division of labour
cannot be practised, which results in
lack of specialisation and concentration.
(v) Marketing: Marketing is one of the
most important activities as it generates
revenue. Effective marketing of goods
requires a thorough understanding of
the customer's needs and
requirements. In most cases, marketing
is a weaker area of small organisations.
These organisations have, therefore, to
depend excessively on middlemen, who
at times exploit them by paying low
price and delayed payments. Further,
direct marketing may not be feasible
for small business firms as they lack
the necessary infrastructure.
(vi) Quality: Many small business
organisations do not adhere to desired
standards of quality. Instead they
concentrate on cutting the cost and
keeping the prices low. They do not
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have adequate resources to invest in
quality research and maintain the
standards of the industry, nor do they
have the expertise to upgrade
technology. In fact maintaining quality
is their weakest point, when competing
in global markets.
(vii) Capacity utilisation: Due to lack
of marketing skills or lack of demand,
many small business firms have to
operate below full capacity due to
which their operating costs tend to
increase. Gradually this leads to
sickness and closure of the business.
(viii) Technology: Use of outdated
technology is often stated as serious
lacunae in the case of small industries,
resulting in low productivity and
uneconomical production.
(ix) Sickness: Prevalence of sickness
in small industries has become a point
of worry to both the policy makers and
the entrepreneurs. The causes of
sickness are both internal and external.
Internal problems include lack of
skilled and trained labour and
managerial and marketing skills. Some
of the external problems include
delayed payment, shortage of working
capital, inadequate loans and lack of
demand for their products.
(x) Global competition: Apart from
the problems stated above small
businesses are not without fears,
especially in the present context of
liberalisation, privatisation and
globalisation (LPG) policies being
followed by several countries across the
world. Remember, India too has taken
the LPG path since 1991. Let us look
into the areas where small businesses
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feel threatened with the onslaught of
global competition.
(a) Competition is not only from
medium and large industries, but also
from multinational companies which
are giants in terms of their size and
business volumes. Opening up of trade
results in cut throat competition for
small scale units.
(b) It is difficult to withstand the
quality standards, technological skills,
financial creditworthiness, managerial
and marketing capabilities of the large
industries and multinationals.
(c) There is limited access to
markets of developed countries due to
the stringent requirements of quality
certification like ISO 9000.
9.6 G OVERNMENT A SSISTANCE TO
SMALL BUSINESS UNITS
Keeping in view the contribution of
small business to employment
generation, balanced regional
development of the country, and
promotion of exports, the Government
of India's policy thrust has been on
establishing, promoting and
developing the small business sector,
particularly the rural industries and
the cottage and village industries in
backward areas. Governments both at
the central and state level have been
actively participating in promoting
self-employment opportunities in
rural areas by providing assistance in
respect of infrastructure, finance,
technology, training, raw materials,
and marketing. The various policies
and schemes of Government assistance
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for the development of rural industries
insist on the utilisation of local
resources and raw materials and
locally available manpower. These are
translated into action through various
agencies, departments, corporations,
etc., all coming under the purview of
the industries department. All these
are primarily concerned with the
promotion of small and rural
industries.
Some of the support measures and
programmes meant for the promotion
of small and rural industries are :
1. National Bank for Agriculture
and Rural Development
(NABARD):
National Bank for Agriculture and
Rural Development was setup in 1982
to promote integrated rural
development. Apart from agriculture,
it supports small industries, cottage
and village industries, and rural
artisans using credit and non-credit
approaches. It offers counselling and
consultancy services and organises
training and development programmes
for rural entrepreneurs.
2. The Rural Small Business
Development Centre (RSBDC)
The Rural Small Business Development
Centre is sponsored by NABARD. It
works for the benefit of socially and
economically disadvantaged
individuals and groups. Through its
programmes it covers a large number
of rural unemployed youth and women
in several trades, which includes food
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processing, soft toys making, ready-
made garments, candle making,
incense stick making, two-wheeler
repairing and servicing,
vermicomposting, and non
conventional building materials.
3. National Small Industries
Corporation (NSIC)
National Small Industries Corporation
wasset up in 1955 with a view to
promote, aid and foster the growth of
small business units in the country.
This focuses on the commercial aspects
of these functions.
(i) Supply indigenous and imported
machines on easy hire-purchase
terms.
(ii) Procure, supply and distribute
indigenous and imported raw
materials.
(iii) Export the products of small
business units and develop
export-worthiness.
(iv) Mentoring and advisory services.
(a) Serve as technology business
Incubators.
(b) Creating awareness on
technological upgradation.
(c) Developing software
technology parks and
technology transfer centres.
4. Rural and Women
Entrepreneurship
Development (RWED)
The Rural and Women
Entrepreneurship Development
programme aims at promoting a
conducive business environment and
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at building institutional and human
capacities that will encourage and
support the entrepreneurial initiatives
of rural people and women. RWE
provides the following services:
(i) Creating a business environment
that encourages initiatives of rural
and women entrepreneurs.
(ii) Enhancing the human and
institutional capacities required to
foster entrepreneurial dynamism
and enhance productivity.
(iii) Providing training manuals for
women entrepreneurs and
training them.
(iv) Rendering any other advisory
services.
5. Scheme of Fund for
Regeneration of Traditional
Industries (SFURTI)
To make the traditional industries
more productive and competitive and
to facilitate their sustainable
development, the Central Government
set up in the year 2005. The main
objectives of the scheme are as follows:
(i) To develop clusters of traditional
industries in various parts of the
country;
(ii) To build innovative and traditional
skills, improve technologies and
encourage public-private
partnerships, develop market
intelligence etc., to make them
competitive, profitable and
sustainable; and
(iii) To create sustained employment
opportunities in traditional
industries.
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6. The District Industries Centers
(DICs)
The District Industries Center was
launched on 1 May 1978, with a view
to providing an integrated
administrative framework at the district
level, which would look at the problems
of industrialisation in the district, in a
composite manner. Identification of
suitable schemes, preparation of
feasibility reports, arranging for credit,
machinery and equipment, provision of
raw materials and other extension
services are the main activities
undertaken by these centers.
9.7 ENTREPRENEURSHIP
DEVELOPMENT
Entrepreneurship is the process of
setting up one's own business as
distinct from pursuing any other
economic activity, be it employment or
practising some profession. The person
who set-up his business is called an
entrepreneur. The output of the
process, that is, the business unit is
called an enterprise. It is interesting to
note that entrepreneurship besides
providing self-employment to the
entrepreneur is responsible to a great
extent for creation and expansion of
opportunities for the other two
economic activities, that is, employment
and profession. And, in the process,
entrepreneurship becomes crucial for
overall economic development of a
nation.When you make this choice, you
become a job-provider rather than a
job-seeker, besides enjoying a host of
other financial and psychological
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rewards. Taking to entrepreneurship is
surely more a matter of aspiring to
become an entrepreneur rather as
being born as one. We would like to
define entrepreneurship as a
systematic, purposeful and creative
activity of identifying a need, mobilising
resources and organising production
with a view to delivering value to the
customers, returns for the investors
and profits for the self in accordance
with the risks and uncertainties
associated with business. This
definition points to certain
characteristics of entrepreneurship that
we turn our attention to.
Entrepreneurship does not emerge
spontaneously. Rather, it is the
outcome of a dynamic process of
interaction between a person and his/
her environment. Ultimately, the choice
of entrepreneurship as a career lies
with an individual, yet he/she must see
it as a desirable, as well as, a feasible
option. In this regard, it becomes
imperative to look at both-factors in the
environment, as well as, factors in the
individual's perception of desirability
and feasibility.
9.7.1 Characteristics of
Entrepreneurship
Every country, whether developed or
developing, needs entrepreneurs.
Whereas, a developing country needs
entrepreneurs to initiate the process of
development, the developed one needs
entrepreneurship to sustain it. In the
present Indian context, where on the
one hand, employment opportunities
in public sector and large-scale sector
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are shrinking, and on the other, vast
opportunities arising from globalisation
are waiting to be exploited;
entrepreneurship can really take India
to the heights of becoming a super
economic power. Thus, the need for
entrepreneurship arises from the
functions the entrepreneurs perform in
relation to the process of economic
development and in relation to the
business enterprise.
The following are the characteristics
of entrepreneurship:
(i) Systematic Activity:
Entrepreneurship is not a mysterious
gift or charm and something that
happens by chance! It is a systematic,
step-by-step and purposeful activity.
It has certain temperamental, skill and
other knowledge and competency
requirements that can be acquired,
learnt and developed, both by formal
educational and vocational training as
well as by observation and work
experience. Such an understanding of
the process of entrepreneurship is
crucial for dispelling the myth that
entrepreneurs are born rather than
made.
(ii) Lawful and Purposeful Activity:
The object of entrepreneurship is lawful
business. It is important to take note
of this as one may try to legitimise
unlawful actions as entrepreneurship
on the grounds that just as
entrepreneurship entails risk, so does
illicit businesses. Purpose of
entrepreneurship is creation of value
for personal profit and social gain.
(iii) Innovation: From the point of view
of the firm, innovation may be cost
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saving or revenue-enhancing. If it does
both it is more than welcome. Even if it
does none, it is still welcome as
innovation must become a habit!
Entrepreneurship is creative in the
sense that it involves creation of value.
By combining the various factors of
production, entrepreneurs produce
goods and services that meet the needs
and wants of the society. Every
entrepreneurial act results in income
and wealth generation.
Entrepreneurship is creative also in the
sense that it involves innovation-
introduction of new products,
discovery of new markets and sources
of supply of inputs, technological
breakthroughs as well as introduction
of newer organisational forms for doing
things better, cheaper, faster and, in the
present context, in a manner that
causes the least harm to the ecology/
environment.
(iv) Organisation of Production:
Production, implying creation of form,
place, time personal utility, requires the
combined utilisation of diverse factors
of production, land, labour, capital and
technology. Entrepreneur, in response
What if, your idea is not just an Idea?
What if, your idea sees the light of the day?
What if, it is really born?
What if, you get someone to believe in it and nurture it?
What, if you set a path to travel on it?
What if, it grows and blooms?
What if, the world embraces your idea?
What if, your idea develops to make the world safer, happier and
prosperous for the future generations?
Adapted from www.startupindia.gov.in
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to a perceived business opportunity
mobilises these resources into a
productive enterprise or firm. It may be
pointed out that the entrepreneur may
not be possessing any of these
resources; he may just have the 'idea'
that he promotes among the resource
providers. In an economy with a well-
developed financial system, he has to
convince just the funding institutions
and with the capital so arranged he may
enter into contracts of supply of
equipment, materials, utilities (such as
water and electricity) and technology.
What lies at the core of organisation of
production is the knowledge about
availability and location of the
resources as well as the optimum way
to combine them. An entrepreneur
needs negotiation skills to raise these
in the best interests of the enterprise.
(v) Risk-taking: It is generally
believed that entrepreneurs take high
risks. Yes, individuals opting for a
career in entrepreneurship take a
bigger risk that involved in a career in
employment or practice of a profession
as there is no "assured" payoff. In
practice, for example, when a person
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quits a job to start on his own, he tries
to calculate whether he or she would
be able to earn the same level of income
or not. To an observer, the risk of
quitting a well-entrenched and
promising career seems a "high" risk,
but what the person has taken is a
calculated risk. They are so sure of their
capabilities that they convert 50%
chances into 100% success. They
avoid situations with higher risks as
they hate failure as anyone would do;
they dislike lower risk situations as
business ceases to be a game/fun! Risk
as such more than a financial stake,
becomes a matter of personal stake,
where less than expected performance
causes displeasure and distress.
9.8 STARTUP INDIA SCHEME
The Startup India Scheme is a flagship
initiative of the Government of India
with an objective to carve a strong
ecosystem for nurturing innovation and
startups in the country. This drive will
lead towards sustainable economic
growth and generate large-scale
employment opportunities. The
Government of India aims to empower
startups to grow through innovation
and design. The scheme specifically
aims to:
(i) trigger an entrepreneurial culture
and inculcate entrepreneurial
values in the society at large and
influence the mindset of people
towards entrepreneurship,
(ii) create awareness about the
charms of being an entrepreneur
and the process of
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entrepreneurship, especially
among the youth,
(iii) encourage more dynamic
startups by motivating educated
youth, scientists and
technologists to consider
entrepreneurship as a lucrative,
preferred and viable career, and
(iv) support the early phase of
entrepreneurship development,
including the pre-startup,
nascent, as well as, early post
startup phase and growth
enterprises.
(v) Broad base the entrepreneurial
supply by meeting specific needs
of under represented target
groups, like women, socially and
economically backward
communities, scheduled castes
and scheduled tribes; under
represented regions to achieve
inclusiveness and sustainable
development to address the needs
of the population at the bottom of
the pyramid.
As per the notification dated
February 17, 2017, issued by the
Ministry of Commerce and Industry, a
startup means:
(i) An entity incorporated or
registered in India.
(ii) Not older than five years.
(iii) Annual turnover does not exceed
` 25 crore in any preceding year.
(iv) Working towards innovation,
development or commercialisation
of products/service/ processes
driven by technology or IPRs and
patent.
SMALL BUSINESS AND ENTREPRENEURSHIP
9.8.1 Startup India Initiative:
Action Points
(i) Simplification and hand-
holding: In order to make compliance
for startups, friendly and flexible,
simplifications are announced.
(ii) Startup India Hub: The objective
is to create a single point of contact for
the entire startup ecosystem and enable
knowledge exchange and access to
funding.
(iii) Legal support and fasttracking
Patent Examination: The scheme for
Startups Intellectual Property
Protections (SIPP) is envisaged to
facilitate protection of patents,
trademarks and designs of innovative
and interested startups.
(iv) Easy exit: In the event of a
business failure and wind up of
operations, procedures are being
adopted to reallocate capital and
resources towards more productive
avenues. This will promote
experimentation with new and
innovative ideas, without fearing
complex and long drawn exit process.
(v) Harnessing private sector for
incubator setup: To ensure
professional management
government sponsored/funded
incubators, the government envisages
setting up of incubators across the
country in PPP mode.
(vi) Tax exemption: The profits of
startup initiatives are exempted for
income tax for a period of three years.
219
9.8.2 Ways to fund startup
In addition to the government plans
that offer startup capital and bank
loans, the funding for startups can also
be availed in the following ways:
(i) Boot strapping: Commonly
known as self financing, it is considered
as the first funding option because by
stretching out your personal savings
and resources, you are tied to your
business. Also, at a later stage, investors
consider it as your merit. However, it is
a good option of funding only if the
initial requirement is small and handy.
(ii) Crowdfunding: It is the pooling of
resources by a group of people for a
common goal. Crowdfunding is not
new to India. There are many instances
of organisations reaching out to
common people for funding. However,
the emergence of platforms that
promote crowdfunding is fairly recent
to India. These platforms help startups
or small businesses to meet their
funding requirements.
(iii) Angel investment: Angel
investors are individuals with surplus
cash who have keen interest to invest
in upcoming startups. They also offer
mentoring or advice alongside capital.
(iv) Venture capital: There are
of professionally managed funds which
are invested in companies that have
huge potential. Venture capitalists
provide expertise, mentorship and act
as a litmus test of where a business
organisation is going, evaluating
business from sustainability and
scalability point of view.
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(v) Business incubators and
accelerators: Early stage business
can consider incubator and accelerator
programmes as a funding option. These
programmes assist hundreds of
startup businesses every year. These
two are generally used
interchangeably. However, incubator is
like a parent who nurtures the
business (child), whereas, accelerator
helps to run or take a giant leap in
business. Incubators and accelerators
ably connect the startups with
mentors, investors and fellow startups
using this platform.
(vi) Microfinance and NFBCs: Micro
finance is basically access to financial
services to those who either do not have
access to conventional banking services
or have not qualified for a bank loan.
Similarly, NBFCs (Non Banking
Financial Corporation) provides
banking services without meeting legal
requirement/definition of a bank.
9.9 INTELLECTUAL PROPERTY RIGHTS
(IPR)
Over the past two decades, intellectual
property rights have grown to a stature
from where it plays a major role in the
development of global economy.
Intellectual property is everywhere, i.e.,
the music you listen to, the technology
that makes your phone work, the
design of your favourite car, the logo
on your sneakers, etc. It exists in all
the things you can see—all are the
products of human creativity and skill,
such as inventions, books, paintings,
songs, symbols, names, images, or
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designs used in business, etc. All
inventions of creations begin with an
'idea'. Once the idea becomes an actual
product, i.e., Intellectual Property, one
can apply to the authority concerned
under the Government of India for
protection. Legal rights conferred on
such products are called 'Intellectual
Property Rights' (IPR). Hence
Intellectual property (IP) refers to
products of human mind, hence,
just like other types of property, the
owners of IP can rent, give or sell it to
other people.
Specifically, Intellectual property
(IP) refers to the creations of the human
mind, like inventions, literary and
artistic works, symbols, names, images
and designs used in business.
In history, you must have come
across the historic 'Battle of
Haldighati', which took place
between the then Rajput ruler, Rana
Pratap Singh of Mewar, Rajasthan
and the Mughal emperor Akbar in
1567 A.D. A similar Battle of Haldi-
ghati was hotly contested in the year
1997. The issue was the patent
granted by the US Patent Office on
turmeric (haldi) to University of
Mississippi medical centre in 1995
for its wound healing properties;
implying that this was a new
invention, when we have been using
haldi since times immemorial for
healing injuries. The Government of
India vehemently opposed this
patent, and ultimately, India won
this battle—the patent was cancelled!
SMALL BUSINESS AND ENTREPRENEURSHIP
Intellectual property is divided into two
broad categories: industrial property,
which includes inventions (patents),
trademarks, industrial designs and
geographical indications, while the
other is copyrights, which includes
literary and artistic works, such as
novels, poems, plays, films, musical
works, artistic works, such as
drawings, paintings, photographs and
sculptures and architectural designs.
The most noticeable difference
between intellectual property and other
forms of property is that intellectual
property is intangible i.e., it cannot be
defined or indentified by its own
physical parameters. The scope and
definition of intellectual property is
constantly evolving with the inclusion
of newer forms. In recent times,
geographical integrated circuits and
undisclosed indications, protection of
plant varieties, information have been
brought under the protection of semi-
conductors and umbrella of intellectual
property. The following types of
Intellectual Property Rights are
recognized in India: Copyright,
Trademark, Geographical Indication,
Patent, Design, Plant Variety,
Semiconductor Integrated Circuit
Layout Design. In addition to this,
traditional knowledge also fall under
IP. You must have often taken homely
remedies passed on from your
grandparents and great-grandparents
as cure for an ailment. These homely
remedies are traditional medicines that
have been practiced in India for past
several centuries. They are also known
as 'Traditional Knowledge'. Some
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examples of Indian traditional
medicinal systems are Ayurveda,
Unani, Siddha and Yoga. Traditional
Knowledge (TK) means the knowledge,
systems, innovations and practices of
local communities across the globe.
Such wisdom has been developed and
accumulated over the years and has
been used and passed down through
several generations. A Traditional
Knowledge Digital Library (TKDL) has
been developed by Government of
India, which is essentially a digital
knowledge repository of Traditional
Knowledge that has existed in our
ancient civilization, especially about
medicinal plants and formulations
used in Indian systems of medicine.
This rich body of knowledge helps
prevents wrongful patenting of our
traditional knowledge.
Another type of IP is Trade Secrets.
You must have heard about the popular
beverage, Coca Cola. But do you know
that the recipe of this beverage is only
known to three people in the whole
world? This secret information is
termed as a 'Trade Secret'. A trade
secret is basically any confidential
information which provides a
competitive edge. Trade secrets in India
are protected under the Indian Contract
Act, 1872.
9.9.1 Why Is IPR Important for
Entrepreneurs?
It encourages creation of new, path-
breaking inventions, such as cancer
cure medicines. It incentivises
inventors, authors, creators, etc., for
their work. It allows the work created
222
by a person to be distributed and
communicated to the public only with
his/her permission. Therefore, it helps
in the prevention of loss of income. It
helps authors, creators, developers and
owners to get recognition for their
works.
With the establishment of the World
T rade Organisation (WTO), the
importance and role of intellectual
property protection has been
crystallised in the Trade-Related
Intellectual Property Systems (TRIPS)
Agreement. With the establishment of
WTO, and India being a signatory to
the agreement on TRIPS, several
legislations were passed for the
protection of intellectual property
rights to meet the international
obligations. These included Trade
Mark Act 1999, the Geographical
Indications of Goods (Registration and
Protection) Act 1999, Designs Act 2000
and Protection of Plant Varieties and
Farmers' Rights Act 2001, the Patents
Act 2005 and the Copyright
(Amendment) Act 2012.
9.9.2 Types of IPs
IPRs are extremely essential for
fostering creativity and contribute
towards the economic growth of a
nation. Such rights allow creators and
inventors to have control over their
creations and inventions. These rights
create incentives for artists,
entrepreneurs and inventors to further
commit the necessary resources to
research, develop, and market new
technology and creative works. The
changing global economy is creating
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unprecedented challenges and
opportunities for continued progress in
human development. There are
business opportunities to market or
sell IP worldwide. Geographical borders
present no impediments—consumers
enjoy near immediate access to almost
everything. At such exciting times, it is
critical that we are aware about the
importance of IPRs and how it affects
daily life.Under the umbrella of
intellectual property, three different
facets come into play, which are:
(i) Law : Intellectual Property Rights
are legal rights conferred upon the
creator/IP owner to prevent others
from using the protected subject
matter. It is a legal watch guard of
knowledge.
(ii) Technology:The pre-requisite of
intellectual property is that, the
creation has to be original. The
creator has to bring something
novel into existence. IPR with
respect to technology covers
various aspects of information
technology, automobiles,
pharmaceuticals, biotechnology
etc.
(iii) Business and Economics: The
basics of IPRs help in the
development of the industry and
in the success of businesses. IPRs
provide rights to the proprietors of
the businesses.
Let's understand each IP now.
Copyright
Copyright is the right to "not copy". It
is offered when an original idea is
expressed by the creator or author. It
SMALL BUSINESS AND ENTREPRENEURSHIP 223

What is protected under Copyright?

Literary work Pamphlets, Brochures, Novels, Books, Poems, Song

Lyrics, Computer Programme

Artistic work Drawings, Paintings, Sculpture, Architectural Drawings,

Technical Drawings, Maps, Logos

Dramatic work Including Dance or Mime, Screenplay, Musical Work,

Sound Recording, Cinetographic films

is a right conferred upon the creators
of literary, artistic, musical, sound
recording and cinematographic film.
The copyright is an exclusive right of
the creator to prohibit the unauthorized
use of the content which includes
reproducing and distributing copies of
the subject matter. The unique feature
of copyright is that, the protection of
work arises automatically as soon as
the work comes into existence. The
registration of the content is not
mandatory but is essential to exercise
exclusive rights in case of an
infringement.
Trademark
A trademark is any word, name, or
symbol (or their combination) that lets
us identify the goods made by an
individual, company, organization, etc.
Trademarks also let us differentiate the
goods of one company from another.
In a single brand or logo, trademarks
can let you know many things about a
company's reputation, goodwill,
products and services. A trademark
helps in distinguishing similar
products in the market from its
competitors. A competitor cannot use
the same, or similar trademark to sell
their product in the market as the same
fall under the concept of deceptive
similarity which may be defined as
phonetic, structural or visual.
similarity. T rademark may be
categorized as Conventional and Non-
Conventional trademark -
(i) Conventional Trademark: Words,
colour combination, label, logo,
packaging, shape of goods, etc.
(ii) Non-Conventional Trademark:
Under this category those marks
are considered which were not
considered distinctive previously
but started getting recognition
with the passage of time i.e. sound
mark, dynamic mark, etc.
Besides these, smell and taste are
also considered for protection as
trademarks, in some parts of the world,
but they are not recognized as
trademarks in India. The registration
of trademark is not mandatory under
the T rademark Act 1999, but
registration of trademark helps
establish exclusive rights over the
mark. To register the mark you can visit
http://www.ipindia.nic.in which is the
website of the Indian Trademark
Registry.

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Geographical Indication
A Geographical Indication (GI) is
primarily an indication which identifies
agricultural, natural or manufactured
products (handicrafts, industrial goods
and food stuffs) originating from a
definite geographical territory, where a
given quality, reputation or other
characteristic are essentially
attributable to its geographical origin.
GIs are part of our collective and
intellectual heritage that need to be
protected and promoted. Goods
protected and registered as GI are
categorized into agricultural products,
natural, handicrafts, manufactured
goods and food stuffs. Naga Mircha,
Mizo Chilli, Shaphee Lanphee, Moirang
pheeand Chakhesang Shawl, Bastar
Dhokra, Warli Paintings, Darjeeling
Tea, Kangra Painting, Nagpur Orange,
Banaras Brocades and Sarees, and
Kashmir Pashmina are some of the
examples of GIs. The importance of GIs
has increasingly grown over the past
few decades. GI represents collective
goodwill of a geographical region, which
has built itself over centuries. Today,
consumers are paying more and more
attention to the geographical origin of
products and accord much care to the
specific characteristics present in the
products that they purchase. In some
cases, there is a difference between
"place of origin" and "geographical
indications" which suggests to
consumers, that the product will have
a particular quality or characteristic,
that they may value.
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Patent
A patent is a type of IPR which protects
the scientific inventions (products and
or process) which shows technical
advancement over the already known
products. A 'patent' is an exclusive right
granted by the Government which
provides the exclusive 'right to exclude'
all others and prevent them from
making, using, offering for sale, selling
or importing the invention.
For an invention to be patentable,
it must be new, non-obvious to any
person who is skilled in the relevant
field of technology and must be capable
of industrial application.
(i) It must be new, i.e. it should not
already exist in the current
knowledge anywhere in the world,
i.e. not in public domain in any
form, before the filing of patent
application (Novelty).
(ii) It must be non-obvious to any
person who is skilled in the
relevant field of technology. That
is, the standard is a person
reasonably skilled in such field of
study (Inventive Step).
(iii) Finally, it must be capable of
industrial application, i.e. capable
of being used or manufactured in
the industry.
Patent can only be filed to get rights
over an invention and not discovery.
Newton saw the apple fall and
discovered gravity which is considered
to be a discovery. On the other hand,
the father of telephone Alexander
Graham Bell invented telephone.
SMALL BUSINESS AND ENTREPRENEURSHIP
Thus when we use our ability to create
something novel, or something unique
into existence, it is called an invention,
whereas the process of highlighting the
existence of an already existing thing
is called discovery.
What cannot be patented?
Scientific principles, contrary to well
established natural laws, formulation
of abstract theory, frivolous
inventions, prejudicial to morality or
injurious to public health, method of
agriculture or horticulture, method of
treatment, admixtures, traditional
knowledge, incremental inventions
without increase in efficacy and
inventions related to atomic energy
are some of the inventions not
patentable under Sections 3 & 4 of
the Patents Act, 1970.
The purpose of patent is to
encourage innovation in the scientific
field. A patent grants exclusive rights
to the inventor for a period of 20 years,
during which anybody else who wishes
to use the patented subject-matter
needs to seek permission from the
patentee, by paying certain costs for
the commercial use of such an
invention. This process of seeking
exclusive rights of the patentee for a fee
is called Licensing.
Patent creates a temporary
monopoly. Once the term of a patent
expires, the invention is in public
domain which means it is free for use
by people. This prevents the patentee
from involving in anti-competitive
practices like creating monopoly etc.
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225
Design
A 'design' includes shape, pattern, and
arrangement of lines or colour
combination that is applied to any
article. It is a protection given to
aesthetic appearance or eye-catching
features. The term of protection of a
design is valid for 10 years, which can
be renewed for further 5 years after
expiration of this term, during which a
registered design can only be used after
getting a license from its owner and
once the validity period is over, the
design is in public domain.
Plant Variety
Plant Variety is essentially grouping
plants into categories based on their
botanical characteristics. It is a type of
variety which is bred and developed by
farmers. This helps in conserving,
improving and making available plant
genetic resources. For example, hybrid
versions of potatoes. Such protection
promotes investment in R&D,
recognizes Indian farmers as
cultivators, conservers and breeders as
well as facilitates high quality seeds
and planting material. This leads to the
growth of the seed industry.
Semiconductor Integrated
Circuits Layout Design
Have you ever seen a computer chip?
Are you aware of integrated circuits
also known as 'ICs'? A semiconductor
is an integral part of every computer
chip. Any product that contains
transistors and other circuitry elements
used and formed on a semiconductor
material, as an insulating material, or
226 BUSINESS STUDIES

inside the semiconductor material. Its
design is to perform an electronic
circuitry function.
IP and Business
We have already discussed the
importance of intellectual property and
the ways to protect it as intellectual
property rights. Let us now see how this
helps a business. Recall the old proverb
'necessity is the mother of all
inventions'? If we were to trace the
development of a wheel from the Stone
Ages, the round wheel was invented as
there was felt a need to increase the
efficiency of work. This wheel
underwent various technological
advancements, and today, we know
successful business tyre giants like
CEAT, JK Tyres, Bridgestone, etc.
Whether a business is establishing
its presence in the marketplace or is
already well-entrenched, protecting
and managing its intellectual property
is critical in taking the business ahead.
Any business has to continuously
innovate and think ahead, otherwise it
will simply stagnate and wither away.
It is equally essential to respect others'
IP, not only on ethical grounds, but
also legal. After all, respect for others'
IP begets respect for one's IP. Start-up
is an entrepreneurial venture that
capitalizes on developing, improving
and innovating new products,
processes and services for the target
audience. Start-ups today are
responsible for several disruptive
technologies that have changed the
very way we think and live. With
20,000+ start-ups, India is said to have
the third largest start-up ecosystem in
the world. The Start-up India initiative
seeks to capture the entrepreneurial
streak in Indians, and create a nation
of job-creators, not job-seekers.
Intellectual property rights can be
critical in aiding new ventures monetise
their ideas and establish
competitiveness in the market by
extending the protective umbrella
offered by IPRs.

Key Terms
Small scale industries Cottage industries Tiny industries
Micro business industries Khadi industries Entrepreneurship

SUMMARY

Role of small business in India: Small Scale Industries play a very

important role in the socio-economic development of the country. These
industries account for 95 per cent of industrial units, contributing up to 40
per cent of the gross industrial value added and 45 per cent of the total
exports. SSIs are the second largest employers of human resources, after
agriculture and produce a variety of products for the economy. These units
contribute to the balanced regional development of the country by using
locally available material and indigenous technology. These provide ample
scope for entrepreneurship; enjoy the advantage of low cost of production;

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SMALL BUSINESS AND ENTREPRENEURSHIP 227

quick decision making, and have quick adaptability and are best suited to
customised production.
Role of small business in rural India: Small business units provide multiple
source of income, in wide range of non-agricultural activities and provide
employment opportunities in rural areas, especially for the traditional
artisan and weaker sections of the society.
Governmental assistance to small industries: Some of the major
institutions providing support include National Bank for Agriculture and
Rural Development, Rural Small Business Development Centre, National
Small Industries Corporation, Small Industries Development Bank of India
(SIDBI), the National Commission for Enterprises in Unorganised Sector
(NCEUS), Rural and Women Entrepreneurship Development (RWE), World
Association for Small and Medium Enterprises (WASME), Scheme of Fund
for Regeneration of Traditional Industries (SFURM) and the District
Industries centre (DIC).
Entr epreneur: The ter ms ‘entrepr eneur,’ ‘entr epr eneurship’ and
‘enterprises’ can be understood by drawing an analogy with the structure
of a sentence in English language. Entrepreneur is the person (the subject),
entrepreneurship is the process (the verb) and enterprise is the creation of
the person and the output of the process (the object).

EXERCISES
Short Answer Questions
1. What are the different parameters used to measure the size of business?
2. What is the definition used by Government of India for Small
Scale Industries?
3. How would you differentiate between an ancillary unit and a tiny unit?
4. State the features of cottage industries.
Long Answer Questions
1. How do small scale industries contribute to the socio-economic
development of india?
2. Describe the role of small business in rural India.
3. Discuss the problems faced by small scale industries.
4. What measures has the government taken to solve the problem of
finance and marketing in the small scale sector?
5. What are the incentives provided by the Government for industries in
backward and hilly areas?
Projects/Assignments
1. Prepare a questionnaire to find out the actual problems faced by an
owner of a small scale unit. Prepare a project report on it.
2. Survey about five small scale units in your vicinity and find out if they
have received any assistance by the institutions setup by
the Government.

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